Let's start with the market....
- It successfully retested August lows and broke through significant resistance at the $200 area. Technicians would view the breakout from a Double Bottom (or possibly an Ascending Triangle)
- Chaikin Money flow exploded to the upside, so institutions are pushing prices higher.
- Price closed above the long term (orange) Chaikin trendline, which has begun to curve upward.
- Price is well above the 21 day MA, which is pointed up.
- The OB/OS oscillator is OVERBOUGHT and price is well above the upper volatility band.
- Technically, the market has reversed its short term downward trend but after a strong move, is more likely than not to revert to the mean before continuing its advance. Eventually, we should match the highs for the year.
The Bull/Bear ratio on the SPY, at 91 bullish/95 bearish stocks is an improvement, but is not in line with the bullish technicals. Therefore, we remain neutral on stocks. A stronger fundamental picture must emerge as earnings season progresses to propel the market to new highs. We'll cherry pick from the areas of the market that have better Power Gauge ratios, such as Tech.
Notice the bull/bear relationship is 19 to 8 on the Tech ETF XLK, a ratio that's better than the overall market. Tech has been out-peforming the market for weeks, and price has already matched the highs for the year.
We'd look in the Semicondutor subsector for trade candidates...
Look at the money flow on Bullish rated Semi-conductor industry component CRUS.
Since earnings are coming up on Wednesday, is this is a great time for us to test out the new options module? Certainly, defining and limiting risk with options makes GREAT sense if you were to put on a bullish trade before the earnings news.